Gold in Early Morning Surge, Global Economic Woes Eyed

Posted by James Randolph onDecember 26, 2012

While the recovery of the U.S. economy and continued political debate over the
budget crisis continue to overshadow markets to some extent, early trade following the
Christmas holiday has given a surge to gold.

After a fall in spot price as much as 0.4 percent to $1,651.62 per troy ounce and
stabilization at $1,655.73 per troy ounce, gold surged to $1,669.00.

Gold fell 2.3 percent last week following optimistic economic data indicating
consumer spending, durable-goods orders, and industrial output increased in November,
causing concerns over the durations of the Federal Reserves fiscal stimulus. Additionally,
a separate report showed the U.S. economy grew at a 3.1 percent annual rate last quarter,
exceeding all projects, per a Bloomberg survey.

Huang Guobo, who oversees management of the $3.3 trillion foreign-exchange
reserves in China, the largest foreign lender to the U.S. government, said the U.S. may
be a bright spot for the global economy in 2013, despite the current budget cliff that has
caused a political impasse in Washington.

Janet Kong, an analyst at China International Capital Corp., said the U.S.
economy has been recovering and the market is optimistic on the resolution of the fiscal
cliff.

The gold market appears to be responding in kind to these sentiments more
quickly than other markets battered by the fiscal cliff debate prior to the holiday.

Physical gold demand has been strong, and at times record-breaking, since the
presidential election. Holdings in gold-backed ETPs reached a record 2,632.516 on Dec.
20, accounting for an expansion of 12 percent this year, according to data compiled by
Bloomberg.

Prior to this morning’s $14 surge in the spot price, gold had achieved a 5.9
percent gain for the year, making for its twelfth annual rally, in a continued flight by
investors seeking a hedge against the weakened currency and threat of inflation stirred by
central bank stimulus.

As the New Year is upon us, analysts are taking stock and looking to the
fundamental drivers of the gold market. Barnabas Gan, an economist at Oversea-Chinese
Banking Corp., wrote that the strongest rationale for gold demand is the deepening of
negative real interest rates in the coming year.